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Saturday, November 26, 2022

Is Scandinavian Brake System (CPH:SBS) using debt wisely?

Warren Buffett famously said, ‘Volatility is not synonymous with risk.’ So it seems that Smart Money knows that debt — which is usually involved in bankruptcy — is a very important factor when you assess how risky a company is. we note that Scandinavian Brake System A/S (CPH:SBS) has debt on its balance sheet. But is this debt a concern for shareholders?

When is debt a problem?

Loans are a tool to help businesses grow, but if a business is unable to pay its lenders, it lies at their mercy. In the worst case, a company may go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a lower cost, thus permanently weakening shareholders. Of course, many companies use debt to fund growth, without any negative consequences. When we think of a company’s use of debt, we first look at cash and debt together.

See our latest analysis for Scandinavian brake systems

What is the debt of the Scandinavian brake system?

As you can see below, Scandinavian Brake Systems had a debt of kr.163.8m in December 2021, up from kr.432.3m a year earlier. Net debt is almost the same, because he doesn’t have much cash.

Debt-Equity-History-Analysis
CPSE: SBS Debt to Equity History 9th April 2022

A Look at the Liabilities of the Scandinavian Brake System

The latest balance sheet data shows Scandinavian Brake Systems had liabilities of kr.10.0m within a year, and falling liabilities of kr.168.4m thereafter. On the other hand, it had receivables worth kr.100.0k and kr.12.8m within a year. So its liabilities exceed the sum of its cash and (near-term) receipts by kr.165.5m.

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Here the deficit kr.27.7m weighs heavily on the company itself, as if a child struggled under the weight of a giant backpack full of books, their sports gear and a trumpet. So we’ll be taking a closer look at its balance sheet without a doubt. At the end of the day, Scandinavian Brake Systems would probably need a major recapitalization if its creditors were to demand repayment. The balance sheet is clearly an area of ​​focus when you’re analyzing debt. But you cannot look at debt completely in isolation; Because Scandinavian Brake Systems would need income to pay off that debt. So if you are interested in knowing more about its earnings, it might be worth taking a look at this graph of its long-term earnings trend.

Last year Scandinavian Brake Systems suffered a loss before interest and tax, and actually slashed its revenue by 98% to kr.7.9m. To be honest, this is not a good sign.

careful customer

Not only did Scandinavian Brake Systems’ revenue decline over the past twelve months, but it also posted negative earnings before interest and taxes (EBIT). Its EBIT loss was a whopping kr.20m. Combining this information with the significant liabilities we’ve already touched on, we’re very hesitant about this stock, to say the least. Of course, it may be able to improve its position with a little luck and good execution. Still, we wouldn’t bet on it, as it has lost kr.19m over the past twelve months, and it doesn’t have much in the way of a liquid asset. So while it’s not wise to assume that the company will fail, we think it’s risky. The balance sheet is clearly an area of ​​focus when you’re analyzing debt. But ultimately, each company may have risks that exist outside the balance sheet. Case in point: we’ve seen 5 Warning Signs for the Scandinavian Brake System You should be aware of this, and 2 of them should not be overlooked.

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When all is said and done, it’s sometimes easier to focus on companies that don’t even need debt. Readers can access the list of growth stocks with zero net debt 100% FREERight now this time.

This article by Simple Wall St. is general in nature. We only provide commentary based on historical data and analyst forecasts using an unbiased methodology and our articles are not intended to be financial advice. It does not recommend buying or selling any stock, and does not take into account your objectives, or your financial situation. Our goal is to bring you long term focused analysis powered by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative content. Simple Wall St does not have a position in any of the stocks mentioned.

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